Baltimore victims of `flipping' look hopefully to government

FHA program aims to fix costs, credit

May 31, 2000|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

Larry Chriscoe is disillusioned but hopeful. Disillusioned that he could be persuaded to pay $115,000 for a problem-filled house that he believes is worth no more than $85,000, and probably less. Hopeful that Uncle Sam will come to his rescue.

At age 50, Chriscoe became a first-time homeowner in spring 1999. He signed a $114,900 mortgage insured by the Federal Housing Administration.

That was six months after West Star Properties Inc. paid $38,000 for the frame house, acquiring it from a lender that had foreclosed on the property.

Concluding that he had been duped in a property flip, Chriscoe consulted lawyers and signed up for a real estate course to try to understand what had happened. Then, FHA cast a lifeline that he plans to grab.

Alarmed by a rising foreclosure rate in Baltimore and by complaints that FHA has fueled rampant property flipping, the federal agency announced May 19 that it plans to help buyers who paid inflated prices for their houses.

FHA will demand that lenders reduce the loans to the actual value of the house. If they refuse, FHA will pay off the mortgage and the owner will get a new loan.

William Apgar, the FHA chief, says the agency will then pursue the lenders to recover its losses.

If the house needs repairs, the new loans might also include money to do the work, Apgar said. And, in cases where default has scarred the owner's credit. FHA will press the lender to fix the problem.

The announcement came six weeks after the U.S. Department of Housing and Urban Development imposed a moratorium on foreclosure action in Baltimore involving FHA mortgages, halting work on foreclosures that had already been filed and suspending the filing of new action. FHA is an agency of HUD.

Now, working with local housing officials, nonprofit agencies and activists, HUD is trying to figure out how the program to reduce inflated mortgages will work.

"They said they have an army of lawyers working on this," said city Housing Commissioner Patricia Payne, who heads a task force working with HUD to craft the aid plan.

"I think it's been a remarkable response on HUD's part. They have really listened."

Estimating that 1,000 homebuyers could be eligible for aid, Andre Weitzman, an attorney who has sued on behalf of more than 100 flipping victims, said: "This cuts to the chase."

Lee Shpritz heads West Star Properties, which sold Chriscoe his house, and the real estate company that acted as agent. His firm has bought and quickly resold dozens of houses in Baltimore at a substantial price increase.

"The only thing I can really tell you is that he got a standard FHA loan," said Shpritz, adding that he had made repairs to the house.

Chriscoe says Shpritz left him with many repairs. He cites the report of an inspector who went over his house after settlement. It listed numerous problems.

Chriscoe, who bought the Batavia Avenue house with Vanessa Costley, is anxious.

"This is the worst situation I've ever been in," says the senior maintenance mechanic at the city District Court on Wabash Avenue. "What hurts me is that as smart and intelligent as I am, I still got burned."

He adds, "This is set up for failure."

HUD's effort is aimed at saving FHA homeowners with inflated loans from such a fate.

Using information compiled by the St. Ambrose Housing Aid Center, HUD plans to deal initially with homeowners who bought their houses after Jan. 1, 1997, and whose lenders filed foreclosure action in the first three months of this year. About 200 FHA borrowers fall into that category.

Yet many others, probably hundreds, have paid inflated prices and could benefit from the federal intervention. Some, like Larry Chriscoe, are not in foreclosure.

While FHA works out the details of its plan, Apgar said, those buyers can seek help through an HUD-approved housing counseling agency.

Others have already lost their homes to foreclosure and are left wondering whether they will get any help.

"It's an important issue," Apgar said after his May 19 announcement. "We're working with the task force to see what we can do."

Still others - owners current with their payments - might be unable to get new financing for the lowered mortgage amount.

That's because they might have gotten inflated loans only after documents were falsified to make them appear more creditworthy than they are.

"If they don't qualify, we'll set them up with relocation assistance and repair their credit," Apgar said. "We'll give them a fresh start."

Take Vicky Distance, a $27,000-a-year pharmaceutical company technician. At 39, the single mother of two is happy to be a first-time homebuyer. Money is tight but she's making sure she keeps up with her mortgage payments.

In October, she paid $60,200 for a four-bedroom rowhouse in the West Baltimore neighborhood of Rosemont. The house had been sold in March for $19,000. Some modest repairs were made, but not all that were promised, she says.

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